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2002 National Lodging Forecast Ernst & Young LLP National Lodging Trends, Outlook & Segment Reports |
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Introduction
After emerging from nearly a decade-long economic slump during 2000, Hawaii was poised to sustain its recovery in 2001. A weak U.S. economy, however, coupled with a persistent lag in Asian market recovery, inhibited Hawaii�s economic expansion throughout the first half of the year, with September 11 bringing Hawaii�s tourism industry to a virtual standstill. Prior to September, Hawaii�s lodging industry was performing at approximately three percent above 2000 levels, with Maui experiencing a nearly seven percent RevPAR growth. Post September, Hawaii�s lodging market experienced performance declines not seen since the Gulf War period as RevPAR declined more than 50 percent the week following the events. Hawaii�s lodging supply far exceeds demand from both westbound and eastbound travelers. Ohau has been particularly impacted due to its reliance on Japanese tourism, which accounts for approximately 50 percent of Hawaii�s total visitors. Faced with softening leisure demand, a weak domestic economy, a reduction in air-routes, and a reduction in eastbound demand, Hawaii�s lodging industry is anticipated to face significant challenges in 2002. Hawaii Report
Major Demand Changes After September 11, eastbound travel weakened considerably. Japanese arrivals, accounting for approximately 75 percent of Hawaii�s international air arrivals, are approximately 60 percent below the prior year. Eastbound visitors are crucial for the Hawaiian lodging market, spending nearly 50 percent and 27 percent more than U.S. west coast and east coast visitors, respectively. Westbound travel has rebounded more rapidly than eastbound travel, but lags last year�s results by approximately 15 percent. The impact of the prolonged tourism sector decline on related industries is evident in the recent bankruptcy of American Classic Voyages and closure of its Hawaii office. A reduction in flight routes to Hawaii following September 11 also threatens the tourism industry�s recovery pace, as air travel is the region�s primary demand facilitator. Hawaiian Airlines and Aloha airlines announced a 20 percent and 25 percent reduction in flights, respectively. Several proposed developments are anticipated to enhance Hawaii�s attractiveness. Construction of Outrigger�s $300 million Waikiki Beach Walk development is anticipated to begin in 2003, including a retail promenade featuring a multi-level entertainment complex. On the Big Island�s Kona coast, the $300 million Hokulia development project, is anticipated to feature an 18-hole Jack Nicklaus signature golf course and 730 ocean view residential units, estimated to cost up to $2 million each. The Hokulia project is anticipated to enhance the Big Island�s infrastructure, adding roadways and public parks. Major Supply Changes Due to land and financing scarcity, operators are focusing on purchasing and renovating existing sites. Hilton recently opened the 453-room Kalia Tower at Hilton Hawaiian Village Beach Resort & Spa in Waikiki. The $30 million renovation of the 719-room Aston Waikiki Beach Hotel is anticipated to be completed July 2002. The Waikiki Beach Marriott Resort, recently sold to CNL Hospitality for approximately $130 million, is undergoing a $60 million renovation with completion anticipated by May 2002. Renovations of the former Sheraton Makaha Hotel on Oahu are anticipated for completion by early 2002. Fairmont Hotels and Resorts acquired and began managing the 450-room all-suite Kea Lani Resort in Maui and Ritz-Carlton purchased the 548-room Ritz-Carlton Kapalua in Maui from the Nissho Iwai Corporation for approximately $143 million. On the Big Island, the Royal Kona Resort is undergoing an expansive renovation with completion anticipated by early 2002. Negotiations are underway for development of a new hotel on the site of the vacant Kona Lagoon Hotel. In Maui, the Outrigger Wailea�s $25 million recent renovations include a new 4,000 square foot spa, refurbished guestrooms, and the addition of a 32,000 square foot garden court and a water activity area. The Maui Marriott�s recent $70 million renovation includes refurbished guestrooms, the addition of an extensive water park, new restaurants, and improvements to the hotel�s common space areas. In Oahu, the Kahala Mandarin hotel recently announced plans for construction of a 13,000-square-foot-spa and fitness center anticipated to open in 2002. Ongoing capital investment projects in Hawaii�s premier lodging properties should help induce both leisure and business demand. Political/Economic/Legal Changes Tourism represents a quarter of the Hawaiian economy and approximately a third of its jobs. Consequently, unemployment in Hawaii�s air transportation industry is seven times last year�s levels while hotel-related unemployment is at 20 times last year�s levels. In addition, arrivals to Hawaii are anticipated to be 15 percent to 20 percent less than previous year�s levels during the coming months. To stimulate tourism and encourage hotel development, government officials have recently approved tax breaks, launched a $45 million marketing plan, and began taking steps to enhance airport security. Tax break legislation provides a 10 percent tax credit for hotel construction and renovations and enables hotel investors to qualify 10 percent of their investment amount against upcoming tax liabilities. Hawaii�s government officials are hopeful that this legislation will induce new investment capital to the islands, help create new jobs, and turn around the slumping economy. Jeff Dallas, Los Angeles
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M. CHASE BURRITT
National Director, Hospitality Services (305) 358-4111 BOSTON
DALLAS
LOS ANGELES
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MIAMI
Mark Lunt (305) 358-4111 NEW YORK
PHILADELPHIA
PHOENIX
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Also See | 2002 National Lodging Forecast / Trends, Outlook, Market Segment Reports / Ernst & Young LLP / Feb 2002 |
2002 California Lodging Forecast / Ernst & Young LLP / Feb 2002 | |
2002 Manhattan Lodging Forecast / Top 10 Thoughts for 2002 and Beyond / Ernst & Young LLP / Feb 2002 | |
Canadian Hotel Investment Report 2002 / Colliers International Hotels / Feb 2002 |